Does your Pensioner Bond mature this Sunday? What should you do with the cash?

Pensioner Bonds are simply fixed-rate savings accounts, launched in January 2015, paying a massive 4% interest for the three-year version (and 2.8% on the one-year version which matured in 2016) – though, as the name suggests, they were only available to those 65+.

In total, just under 900,000 people took one out between January and May that year. And the three-year versions will mature between 15 January and 5 May this year. Everyone who has Pensioner Bonds – which are operated by Government-backed savings provider NS&I – will get a letter about a month before (so many should already have theirs) laying out the options for their maturing cash. Here, we run the rule over your choices.

See our Pensioner Bonds guide for more on how they work – though it’s been archived as you can no longer get them.

What happens when my Pensioner Bonds mature?

When an account matures, it just means that the fixed term is over, so in this case it means you’ll no longer get the 4% rate.

If you do nothing, you’ll be enrolled into NS&I’s three-year ‘Guaranteed Growth Bond’ paying 2.2% – again, while the name sounds weird it’s just a savings account paying a fixed rate of interest for three years.

Of course, you can just take the money out and do what you want with it – nothing stops you moving it into another non-NS&I savings account.

Savings rates haven’t got much better since

Pensioner Bonds were popular three years ago as 4% was a fantastic rate when you consider the base rate then stood at a paltry 0.5% – as it does now.

So three years later, nothing’s really changed – the savings landscape’s still dire, with rates in the toilet. In fact, it’s got worse. When you took out the 4% Bond, the top market rate for three-year accounts was 2.5%. Now it’s 2.25%. And, as you might have guessed, there’s nothing out there right now that pays a guaranteed 4% on your savings.

I want to put my money back into savings. Which account is best?

In its letter NS&I gives you several options of accounts that you can save the cash in. It offers fixed-rate accounts for one, two, three or five years – and unlike many fixed-rate savings, you can withdraw your money before the term is up for a penalty equivalent to 90 days’ interest.

We’ve full analysis of them below, but our top pick is the three-year NS&I deal (the one you’re rolled onto as standard). It’s among the best buys even against other three-year accounts on the market; even with the penalty for early withdrawal, the effective rate against shorter fixes is good. Here’s how it compares with top rates you can get from the market at the moment…

NS&I’s three-year account compared with normal fixed savings
Term Top fixed-saving interest rate (AER) Three-year NS&I Bond (effective rate withdrawing after…)
One year 1.8% 1.66%
Two years 2.05% 1.93%
Three years 2.25% 2.2%

What you choose to do depends a lot on if you know you’ll need access to the cash. If you know you’ll need access straightaway, or in the next couple of months, it’s best to go for easy access, as you’ll then be able to get the cash out when you want, with no penalties for doing so – the top rate’s currently 1.32% AER.

If you know you’ll need the cash in a year, or in two years, the best-buy fixes from the market will beat keeping your money in the NS&I 2.2% account and paying the penalty to withdraw.

However, if you don’t know that you’ll need the cash, but want to leave the possibility that you might, this is where the NS&I account comes into its own. The differences are not huge in percentage terms – eg, if you withdraw after two years, you’d have an extra 0.12% in interest in the market account over NS&I, though this is only equivalent to a difference of £28 in interest over those two years on £11,200 (an average of what many will be getting back if they put the max £10,000 into the three-year Pensioner Bond).

So, to recap: if you need access soon, go for easy-access savings. If you know you won’t need access, fixed savings pay the most. But, if you may need access, the three-year NS&I account’s the winner here.

You don’t need to do anything to get the account as you’ll automatically be renewed into it, but if you want to log in and check your balance, do so on NS&I’s website.

Would I be better off going for one of the other accounts NS&I’s offering me?

NS&I’s other option is that you put your cash into its one, two or five-year ‘Guaranteed Growth Bonds’.

So we’ve analysed how much each account would give you back if you needed to withdraw cash after one, two, three, four or five years, assuming an £11,200 investment.

Investing £11,200 in NS&I’s Guaranteed Growth Bond (GGB) options…
Total capital withdrawing after…
Fixed term Rate (AER) Penalty to withdraw 1yr 2yrs 3yrs 4yrs 5yrs
One-year GGB 1.5% 90 days’ interest £11,368
Two-year GGB 1.7% 90 days’ interest £11,343 £11,536
Three-year GGB 2.2% 90 days’ interest £11,386 £11,636 £11,956
Five-year GGB 2.25% 90 days’ interest £11,390 £11,647 £11,909 £12,177 £12,518

On the face of it, the five-year account’s the one to go for, as it pays the most for each of the years even after the withdrawal interest penalty is paid; the exception being withdrawing the cash from it after three years.

For us, the 2.2% three-year account’s still the winner here. The difference between that and the five-year if you need to withdraw in the first couple of years is minuscule. But if you think the five-year account’s for you, that’s not a bad choice, and you’ve an easy exit if rates do rise in the meantime. To get this (or the one or two-year accounts) log in to the NS&I website and click ‘view maturity options’, where you can select to renew into these accounts.

I’ve heard bank accounts pay high rates of interest. Could I beat the NS&I 2.2% rate there?

This isn’t as true as it used to be, and definitely isn’t as true as it was when you first took out the Pensioner Bond. Around the end of 2016 and start of 2017, many of the banks offering high-interest current accounts cut rates. Santander cut its 123 account interest from 3% to 1.5%, TSB’s Classic Plus was cut from 5% to 3%, Club Lloyds cut rates from a top 4% rate to 2% and Bank of Scotland lowered its Vantage rate from 3% to 2%.

While there are still higher rates available from bank accounts, notably Tesco Bank’s guaranteed 3% until April 2019, and Nationwide’s 5% for a year, they only allow you to save a small amount, and you generally need to have cash going into the account and direct debits going out each month, making them a high-maintenance option if you just want savings you can set up and forget about.

If you’re going down the bank account route, you’ll need a few accounts to be able to save your full £11,200. If you want to try, our Savings Loophole guide will help.

Doing this will mean you end up with around £12,000 at the end of the three years (assuming the banks don’t change interest rates), about £50 more than the NS&I three-year account would. However, you’d need to have spent money on direct debits, eg, to charity.

The extra effort involved for an extra £50 isn’t really worth it. If you were just setting up the bank accounts to get the interest, you’d actually lose out as you’d be paying out direct debits, which’d mean you’d have been better off going for the 2.2% NS&I account.

So what should I do?

Assuming you’re risk-averse and want a savings account, our analysis shows you can (just about) beat NS&I’s three-year 2.2% account if you’re prepared to work at it setting up a few bank accounts. But it turns out that doing nothing is – for once – not actually a bad thing to do.

However, if any of the other options appeal, don’t discount them out of hand. None of the ideas we’ve run through here is a bad idea for your money – just pick the one that suits you best.

If you are cashing in, once you’ve received your letter, you’ll need to visit the NS&I website, or write to NS&I, to let it know you want the cash returned to you. You’ll need to do this a couple of days before your account matures at the latest.

Of course, you could invest the money instead, but it’s risky…

We don’t really cover investing at, and we definitely can’t tell you where to invest for good returns. Yet it’s an option if you know what you’re doing and can invest over the long term. With risk tends to come higher reward, but that’s not always true. You could end up losing it all.

Plus, again, if you’ll need the money in your retirement, it’s much better to go for savings where there’s no risk to the money you put in, and a guaranteed reward. You don’t want to risk a downturn in the market just before you were planning to withdraw the cash.

There are many reasons not to invest, but if you know what you’re doing, it could be a decent shout. Consider carefully if it’s for you.